Advantages of Subordinated Debt

Equity and reinsurance are currently the main sources of regulatory capital for mid-sized insurers. Sub debt can be complementary to these more traditional forms, but also has number of other benefits:

• The capital is maintained on balance sheet
• Subordinated debt is less expensive than alternatives such as equity
• No counterparty risk, capital is fully paid up and not contingent
• It enhances return on equity and avoids dilution
• Products are transparent and loan notes have a simple structure
• Loan notes contain limited restrictions or covenants
• Subordinated debt has tax benefits to the issuer
• Enables access to new investor classes previously inaccessible to mid-sized insurers
• Is very flexible in stress situations
• Designed to be fully compliant with Solvency II requirements
• Facilitates business growth in adjacent markets or with similar insurance products
• No rating agency input required
• Long term capital solution
• Allows mutual insurers to distribute more surplus to existing members